Consequential Damages Caused by Construction Subcontractor’s Defective Work Were “Property Damage” and an “Occurrence” Under CGL Insurance Policy

Cypress Point Condominium Ass’n, Inc. v. Adria Towers, LLC, 441 N.J. Super. 369 (App. Div. 2015).  A condominium association sued multiple parties, including insurers under commercial general liability (“CGL”) insurance policies, for consequential damages arising out of defective construction work performed by subcontractors.  An insurer moved for summary judgment on the ground that there was no “property damage” or “occurrence,” as required to trigger coverage under the CGL insurance policies that that carrier and another one had issued with identical language.  The Law Division agreed.  Plaintiff appealed, and the Appellate Division reversed.  Judge Fasciale wrote the panel’s opinion, which applied de novo review to the purely legal question of the proper interpretation of the insurance policy at issue.

The panel interpreted the plain language of the policy, read as a whole, language which followed the 1986 standard CGL form of the Insurance Services Office, Inc. (“ISO”).  Judge Fasciale also applied the reasonable expectations of the developer that, “for insurance risk purposes, the subcontractors’ faulty workmanship is to be treated differently than the work of a general contractor.”  He distinguished the two key cases on which the Law Division had relied, Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (1979), and Firemen’s Insurance Co. of Newark v. National Union Fire Ins. Co., 387 N.J. Super. 434 (App. Div. 2006).  Those cases had construed a 1973 ISO form that had different language than did the 1986 ISO form at issue here, including a different definition of “occurrence.”  They also “involved only replacement costs flowing from a business risk, rather than consequential damages caused by defective work.”

Judge Fasciale also found persuasive cases from other jurisdictions.  “[T]he majority rule [currently] is that construction defects [causing consequential damages] constitute ‘occurrences.'”  The Supreme Court of Florida, which had distinguished Weedo in addressing this same issue, and the Fourth Circuit Court of Appeals were among the cases that the panel here cited in further support of its result.  The Law Division had relied on a not precedential decision of the Third Circuit that was premised on Firemen’s, an approach that Judge Fasciale found to be “respectfully misplaced” given that Firemen’s had involved different language.

The Appellate Division did not, however, decide that plaintiff was entitled to coverage.  The insurers had invoked policy exclusions that they claimed would bar coverage even if the consequential damages were found to be “property damage” or an “occurrence” as defined by the 1986 ISO form.  The Law Division had not addressed any of the claimed exclusions, and Judge Fasciale declined to exercise original jurisdiction to do so on appeal, since such original jurisdiction is to be exercised only with “great frugality” and not when “there is a need to weigh evidence anew or make independent factual findings.”  Accordingly, the case was remanded to the Law Division for consideration of whether policy exclusions might bar coverage.